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Business Opportunity, License or Franchise

Written by: David R Waldman

Article Overview: What are the basic differences between a business opportunity, license opportunity and franchise?? This article covers the basics and gives the reader a few pieces of valuable information when evaluating investments.

Business Opportunity, License or Franchise

A quick description of a business opportunity would be where one company provides the opportunity, for a fee, to another company or individual to go into business. Sounds like a franchise? It’s close and even competent legal counsel can have difficulty sorting one from the other.

Putting aside the FTC definition, there are primarily two main types of opportunities that fit the business opportunity definition - distributorship and licensing.

In a distributorship the purchaser generally buys the rights to sell the company's product within a territory and that territory may or may not be exclusive.

In a licensing relationship the purchaser generally obtains limited rights to use proprietary data, technology or trademarks from the company from which products or services can be offered to the public.

Still sounds like a franchise? The distinction is often found in the degree of the relationship between the parties. In a business opportunity the important element of the relationship is really the specific product or service that is being delivered. In a business format franchise it is the system of delivery that is most important. It is not the widget of a business that is most important in the relationship. While product is important, it is the system of delivery used by the franchisee to the public that is really the principal element in the relationship. Another major distinction is that the business opportunity owner generally does not use the company's name or logo in identifying their business as they would in a franchise.

Some other differences to consider:

Support: Franchisee generally receive training, marketing and other support on a continual and ongoing basis while in a business opportunity, that support may not be provided or is incidental to the relationship.

Exclusivity : Franchisees usually offer only the products or services authorized by the franchisor while in a business opportunity they may handle a variety of different products or services.

Fees: Generally speaking the initial fees for getting into a franchise relationship are higher than those required in a business opportunity. Additionally since the licensor usually relies on the sale of products to the licensee for their income in a business opportunity they typically may not charge a continuing royalty payments. In a franchise the relationship is different. The franchisee generally pays a continuing royalty since the significant benefit they get from the franchisor is the use of the franchisor’s system of doing business and any ongoing support that the franchisor may provide and not product supplied by the franchisor.

If there is a major advantage of a business opportunity over a franchise is that it offers a buyer a greater degree of flexibility in conducting their business than a franchise. Business opportunities are usually offered at a lower cost to get into the relationship. For many, it is a good method for home-based, part time or second income businesses.

Probably the most significant drawback to a business opportunity is that the business owner generally does not receive the management systems, training, ongoing support, marketing and other support services that are the hallmark of most franchise relationships.

You will often hear franchisors use the phrase that when you become a franchisee "you are in business for yourself and not by yourself". It may not always be true in franchising but after you sign a business opportunity agreement generally speaking you are in business for yourself - period. If you are a true entrepreneur though this may be the perfect opportunity for you to start a new business.

David R. Waldman is the founder of PIR & Associates Inc. providing no-cost assistance to entrepreneurs nationwide, helping them identify franchise opportunities that match their interests, backgrounds and goals. PIR & Associates Inc., also provides services to businesses that wish to duplicate their operations and create franchise wealth.

Contact us at 1-877-615-5177 or visit our web site at: www.PIRandAssociates.com

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  Selecting a Business Franchise for Sale
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  Franchising vs. Licensing

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